TOP BREWER’S PLAN TO BUY RIVAL BLOCKED BY FEDS’ SUIT

Market share in the U.S.

46%

1. Anheuser-Busch InBev and Grupo Modelo

28.4%

2. MillerCoors, a venture between SABMiller and Molson Coors Brewing

5.3%

3. Crown Imports

The Justice Department filed a lawsuit Thursday to stop Anheuser-Busch InBev’s proposed $20.1 billion purchase of Mexican brewer Grupo Modelo, which would unite the ownership of popular beers like Budweiser and Corona.

The government said the deal could lead to higher beer prices in this country because it would substantially reduce competition in the U.S. beer market, particularly in 26 metropolitan areas. It said the merged firm would control nearly half the beer sales in the U.S.

Americans spent at least $80 billion on beer last year. Despite a huge array of beers on store shelves, the beer market is dominated by two big players.

Anheuser-Busch InBev promised a court fight to preserve its deal.

However, ABI and U.S. regulators are proceeding with talks to allow the company to acquire Modelo even after the government filed a lawsuit to stop it, said people familiar with the matter.

Justice brought the suit Thursday because a deadline was looming to end its investigation and because it allows the government to keep its options open, according to one of the people, who asked not to be identified because the process is private. The parties haven’t fallen into intractably hostile camps, that person said.

ABI agreed in June to buy the half of Modelo it didn’t already own, which would give the world’s biggest brewer control of the top-selling U.S. beer brand, Bud Light, as well as No. 1 import Corona. While ABI said it would “vigorously contest” the lawsuit, it said it no longer expected the transaction to close this quarter.

The Justice Department’s lawsuit in federal court in Washington, D.C., seeks to prevent the merger and to continue competition between the firms. Shares of both companies plunged after the announcement.

Bill Baer, the assistant attorney general in charge of the department’s antitrust division, says ABI would be able to increase beer prices to U.S. consumers if the merger were to go through. “What we saw was a pattern of behavior” in which the “big folks were working hard to get price increases and Modelo was a significant constraint” on that behavior, Baer said.

ABI said the government’s bid to block the proposed merger is inconsistent with the law, the facts and “the reality of the marketplace.” “We remain confident in our position, and we intend to vigorously contest the DOJ’s action in federal court,” the company said.

According to court papers filed in the case, ABI acts as the industry price leader, with MillerCoors and other brewers typically joining the price increases set by ABI. Modelo, in contrast, has not joined.

By pricing aggressively, Modelo — through its importer, Crown Imports — puts pressure on ABI to maintain or lower prices.

The government lawsuit harms the chances of Constellation’s related $1.85 billion deal that would land it greater U.S. control of Corona and other beers. Constellation was to buy the remaining half of a joint venture with Grupo Modelo, Crown Imports, that has allowed Constellation to import, market and sell Modelo beers in the U.S. for nearly 20 years.

The deal with Constellation was intended to alleviate antitrust concerns. But the Justice Department said that it wasn’t enough to protect U.S. beer buyers. Constellation had said its deal would have made it the third-biggest total beverage alcohol company in the U.S.

U.S.-based Anheuser-Busch was purchased by Leuven, Belgium-based InBev in 2008 in a $52 billion deal. The combined company is already the world’s biggest brewer and makes Budweiser, Beck’s and Stella Artois, among others. Its purchase of Grupo Modelo would have given the combined company annual sales of $47 billion and 150,000 workers in 24 countries.